FATCA, FBAR and cross-border reporting for financial ..._FBAR_and_cross-border... · FATCA, FBAR and cross - border reporting for financial services entities Debra Taylor, Ernst &

FATCA, FBAR and cross-border reporting for financial services entities Debra Taylor, Ernst & Young LLP Faye Polayes, Ernst & Young LLP Justin O’Brien, Ernst & Young LLP Douglas Sawyer, Ernst & Young LLP

Page 2 Eighth Annual Global Compliance and Reporting Conference | New York | 2 April 2013

Disclaimer

► Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US.

► This presentation is © 2013 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party.

► Views expressed in this presentation are not necessarily those of Ernst & Young LLP.

Your presenters

► Debra Taylor Ernst & Young LLP New York, NY

► Faye Polayes Ernst & Young LLP New York, NY

► Justin O’Brien Ernst & Young LLP New York, NY

► Douglas Sawyer Ernst & Young LLP New York, NY

Agenda

1. What is FATCA? ► Impact on US entities ► FATCA vs. existing law ► Impact on US entities and

multinationals

2. Categories of entity classifications ► Carveouts ► Clarifications ► Deemed-compliant FFIs ► EBOs

3. Withholdable payments ► Types of payments ► Exclusions ► Source

4. Documentation ► Electronic W8s ► Pre-FATCA W8s ► Validity ► Miscellaneous ► Eyeball test

5. Multiple accounts 6. Impact of IGAs 7. FBAR

What is FATCA?


What is FATCA?

► The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 and was designed to identify US taxpayers who may be evading US taxation by investing in offshore investment vehicles or foreign accounts.

► FATCA introduces new documentation standards, information reporting and compliance requirements for all entities as payors.

► FATCA is generally effective on 1 January 2014, but with phased-in effective dates for various specific requirements.

► Foreign financial institutions (FFIs) will be required to enter into agreements with the Internal Revenue Service (IRS) to become “participating FFIs” or they may be subjected to new withholding requirements.

► Nonfinancial foreign entities (NFFEs) must certify as to “substantial” US owners or suffer 30% withholding.

► FATCA imposes a 30% withholding tax on certain US-connected payments made to entities that choose not to participate in FATCA and payees who refuse to be documented.

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FATCA vs. existing law

► FATCA is an additional reporting and withholding regime that will apply before the existing nonresident alien (NRA)/Section 1441 regime, but many of the concepts will converge.

► NRA vs. FATCA — generally: ► Existing NRA rules are aimed at withholding US tax and reporting

of US source fixed or determinable, annual or periodical (FDAP) income paid to non-US persons.

► FATCA is not designed to impose a withholding tax, but rather is designed to capture information about US persons. Withholding generally only applies if there are payments to: ► NFFEs that fail to either identify and disclose substantial US owners or

certify they have no substantial US owners Or

► Nonparticipating (or presumed nonparticipating) FFIs


FATCA’s impact on US entities and multinationals

► FATCA applies to all entities; the impact on each entity will vary based on footprint and business lines

► FATCA presents financial risks and operational challenges for most companies.

► FATCA will impact US entities as payors and multinational entities as both payors and payees.

► 30% withholding tax applies to noncompliant organizations and recalcitrant account holders.

► Failure to comply with FATCA will make it difficult to do business with other compliant institutions.

► FATCA will impact business operating models from customer and vendor onboarding to operations and compliance.

► The identification of affected payors and payees must be accomplished quickly to enable an effective communication strategy and action plan.

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What should multinationals do now?

► Corporate footprint ► Define and review organizational footprint ► Review entities within the corporate footprint and identify each legal entity’s FATCA

classification (US withholding agent (USWA), FFI, NFFE, etc.) ► For each entity, identify documentation to be provided to a payor

► Payment streams ► Identify business units making and processing payments and review

FATCA implications ► Accounts payable, Treasury, shareholder relations and any other function involved in

payment processing and determination of income (e.g., procurement, legal and business units).

► Review impact on intercompany transactions as well as third-party payments

► Current information reporting and withholding (IRW) compliance capabilities ► Review current information reporting and withholding compliance ► Identify process and procedure gaps that may delay or derail FATCA

compliance efforts


Grandfathered obligations:

Participating FFI reporting on recalcitrant accounts and on NPFFI accounts:

Reporting on owner-documented FFIs NFFEs with substantial US owners:

New accounts:

General milestone (USWA and PFFI) PFFI milestone

TBD: USWAs & PFFIs begin to report 2017 US gross proceeds

31 Dec 2015: USWAs and PFFIs complete due diligence for all remaining accounts(5)

1Jan 2016: USWAs & PFFIs begin withholding on all US FDAP pmts to all other pre- existing accts

FATCA timeline — final regulations issued

Pre-existing accounts:

Participating FFI reporting on specified US(8):

Pre-existing account due diligence

7.1.2015 1.1.2013 7.1.2014 7.1.2016 7.1.2017 1.1.2014 1.1.2015 1.1.2016 1.1.2017 7.1.2013

15 Jul 2013: FATCA registration portal open on or before this date(1)

1Jan 2014: USWAs & PFFIs begin account due diligence

1 Jan 2014: USWA & PFFI new FATCA account onboarding must be operational

30 Jun 2014: USWAs & PFFIs prima facie acct due diligence complete (4)

31 Dec 2013: FFI agreement earliest effective date(1) FFI compliance

1Jan 2014: USWA and PFFI grandfathered obligation cut-off (13)

1.1.2018

31 Mar 2016: PFFIs annual reporting for US accounts includes payments other than gross proceeds for YE2015

7.1.2018

New account onboarding

Reporting

Withholding

1 Jan16: entire Expanded Affiliate Group compliant, including limited FFIs and limited branches(3)

31 Mar 2015: PFFIs begin annual reporting of account balances and identifying information for YE 2013 and YE 2014 (7)

31 Mar 2015: PFFIs begin annual reporting of aggregate # of and value of YE recalcitrant accounts broken out by US persons, those with US indicia, those w/o US indicia, passive NFFEs and dormant accounts for YE 2013 and 2014(9)

31 Mar 2016: PFFIs report YE2015 non-US reportable amounts and US FDAP payments made to NPFFIs on Form 1042-S

USWA milestone

29 Feb 2016: responsible officer (FFI) makes certifications related to due diligence and FATCA anti-avoidance(2)

Reporting on US source payments to non-US payees (1042-S):

15 Mar 2015: PFFIs begin to report 2014 US FDAP

31 Dec 2016: USWAs ability to rely on old Form W-8s from certain payees expires

31 Mar 2015: USWAs and PFFIs begin reporting on owner-documented FFIs(11)

31 Mar 2015: USWAs begin reporting on NFFEs with substantial US owners(12)

15 Mar 2015: USWAs 1042-S filings include FATCA requirements

31 Dec 2014: PFFIs complete due diligence for high value (HV) individual accounts (5)

This timeline does not reflect the deadlines related to entities that are affected by an intergovernmental agreement (IGA). Dates used for participating FFIs (PFFIs) assume the FFI agreement has the earliest possible effective date of 31 December 2013. Footnotes are included on the next page.

1Jul 2014: USWA and PFFI grandfathered obligation cut-off for dividend equivalents(13)

1Jan 2014: USWAs and PFFIs begin to withhold on US FDAP pmts (6)

1 Jan 2017: earliest date for PFFI grandfathered obligation cut-off for pass-thru payments(13)

1 Jan 2017: USWAs and PFFIs begin to withhold on US gross proceeds

1 Jan 2017: Earliest date PFFIs will begin to withhold on foreign passthru payments(10)

1 Jan 2017: USWAs and PFFIs begin to withhold on US gross proceeds

1Jul 2014: USWAs and PFFIs withhold on US FDAP pmts to NPFFIs (prima facie FFIs)

1Jan 2015: PFFIs begin withholding on US FDAP pmts to HV accts

31 Mar 2017: PFFIs report YE2016 non-US reportable amounts and US FDAP payments made to NPFFIs on Form 1042-S

30 Jun 2017: begin every 3-year certification by responsible officer that FFI has effective internal controls(2)

1 Jan 2017: earliest date PFFIs will begin to withhold on foreign pass-thru payments(10)

1Jan 2015: USWAs & PFFIs — for pre-existing obligations begin withholding on pmts to certain passive NFFEs(14)

31 Mar 2017: PFFIs annual reporting for US accounts includes gross proceeds beginning in 2016


FATCA timeline footnotes

1. The FATCA Registration Portal (Portal) will open no later than 15 July 2013 for FFIs to register as participating FFIs, sponsoring entities, limited FFIs or registered deemed-compliant FFIs (including reporting Model 1 FFIs and reporting Model 2 FFIs). By 15 October 2013, the IRS will begin issuing a global intermediary identification number (GIIN) to each FFI registered through the Portal. Sponsoring entities will begin to provide sponsored FFI information and obtain GIINs for each sponsored FFI by this date, if not earlier. 25 October 2013 is the latest date that FFIs can register in the Portal to ensure inclusion on the first list (IRS FFI list) of participating FFIs and registered deemed-compliant FFIs electronically posted on 2 December 2013.

2. Responsible officer must certify that the high value (HV) pre-existing individual account due diligence is complete; that all account due diligence is complete and that all documentation requirements are complete or, if no documentation is obtained, account is treated as a recalcitrant account. The responsible officer must also certify that the PFFI did not have any formal or informal practices or procedures in place at any time from 6 August 2011 through the date of certification to assist account holders in the avoidance of Chapter 4. These certifications must be made no later than 60 days following the date that is two years after the effective date of the FFI agreement (29 February 2016 assuming a 31 December 2013 FFI agreement effective date). Once every three years, the responsible officer must certify to the IRS that the PFFI is in compliance with the FFI agreement and make a certification on effective internal controls.

3. Certain “limited branches”/“limited FFIs” unable to comply with FFI agreement (e.g., reporting or acct closure) due to legal barriers will be treated as NPFFIs. Limited branch/FFIs cease to be limited branches/FFIs at the beginning of the third calendar quarter following the date the branch/FFI is no longer prohibited from complying with the requirements of a PFFI.

4. For prima facie FFIs: PFFIs must complete due diligence within six months of the effective date of the FFI agreement (earliest possible date is 30 June 2014). USWAs must complete this due diligence by 30 June 2014. Withholding agents must treat undocumented prima facie FFIs as NPFFIs after the due diligence deadlines until the date the withholding agent obtains documentation sufficient to establish a different Chapter 4 status of the payee.

5. For high value individual accounts, PFFIs must complete due diligence within one year of the effective date of the FFI agreement (earliest possible date is 31 December 2014). For all remaining accounts, due diligence must be completed within two years of the FFI agreement effective date (earliest possible date, 31 December 2015). USWAs must complete due diligence on all remaining accounts by 31 December 2015.

6. USWAs and PFFIs must begin withholding on payments made to new account holders and payees not documented with Forms W-8, W-9, etc., as required. 7. Name, address, taxpayer identification number (TIN), account balance and account number of (i) the account holder that is a specified US person; (ii) the NFEE that is

US-owned (TIN if available) and of each substantial US owner of such entity; or (iii) the owner-documented FFI (ODFFI) and of each specified US person/owner of the ODFFI. Participating FFIs will be required to file reports 31 March 2015 with respect to report year-end 2013 and year-end 2014 account balances.

8. PFFIs can elect to report under existing Form 1099 rules. 9. For reporting due 31 March 2015: special reporting rules require reporting of year-end 2013 information for pools of recalcitrant accounts identified as of 31 December

2014. Ongoing annual reporting, beginning 31 March 2015, reports on prior year’s year-end information. 10. Withholding is not required until the later of 1 January 2017 or the date final regulations are issued defining foreign pass-thru payment. 11. The withholding agent will be required to report name of the owner-documented FFI; name and TIN/employer identification number (EIN) of specified US person; the total

of all payments made to the owner-documented FFI; the account balance or value of the account held by the owner-documented FFI; and any other information required on Form 8966 and accompanying instructions.

12. Reporting of substantial US owners of an NFFE that is not an excepted NFFE is required on 31 March following the year in which a withholdable payment is made. 13. Obligation must be outstanding on the respective date. Obligations to make a payment with respect to, or to repay, collateral posted to secure obligations under a notional

principal contract (NPC) that is a grandfathered obligation are grandfathered. Obligations that produce or could produce a foreign pass-thru payment (that cannot produce a withholdable payment) are grandfathered if issued before the date final regulations are issued defining the term “foreign pass-thru payment” plus six months. Obligations that give rise to a dividend equivalent (pursuant to § 871(m)) are grandfathered if issued before the date the obligation is first subject to dividend equivalent treatment plus six months.

14. This provision applies when a payment is made to a passive NFFE which fails to provide US owner information. An IRS official stated in a public conference held on 6 February 2013 that the effective date for this provision will be moved to 1 January 2016.

Categories of entity classifications


FFI definition: new financial institution (FI) category, carveouts and clarifications

► An “FI” is an entity that: ► Accepts deposits in the ordinary course of a banking or similar business

(a depository institution) ► Holds, as a substantial portion of its business, financial assets for the account of others (a

custodial institution) ► Is an investment entity (new definition) ► Is an insurance company or holding company of an expanded affiliated group that contains

an insurance company that makes payments with respect to a cash value insurance or annuity contract Or

► Is a holding company or treasury center (new category) that: ► Is part of an expanded affiliated group that includes a depository institution, custodial institution,

investment entity (other than an entity which only provides trading, management and advisory services to clients) or insurance company Or

► Is formed in connection with a collective investment vehicle or other type of fund ► Investment entity is one of three broad types of entities:

1. An entity whose primary business is, on behalf of customers, to: ► Trade in financial instruments ► Provide individual or collective portfolio management ► Otherwise invest, administer or manage funds, money or certain financial assets on behalf of other

persons (e.g., act as an investment advisor or money manager)


FFI definition: new FI category, carveouts and clarifications (cont.)

2. An entity whose gross income is primarily attributable to investing, reinvesting or trading in financial assets and the entity is managed by an investment advisor or a depository institution, custodial institution or insurance company Or

3. An entity that functions or holds itself out as a collective investment vehicle, mutual fund, exchange-traded fund, private equity fund, hedge fund, venture capital fund, leveraged buy-out fund or a similar investment vehicle

► Other clarifications and changes under final regulations (generally align with IGA interpretations): ► A depository institution includes a credit card company that allows customers to accumulate

credit balances and/or make excess payments to their cards (or issues prepaid cards). ► A lessor or lessee which accepts and makes deposits solely as collateral securing a sale or

lease of property is not a depository institution. ► Custodial institution: as in proposed regs., more than 20% of gross income must be “income

attributable to holding financial assets and providing related financial services” ► Final regs. provide definition: custody account maintenance and transfer fees, securities broker

commissions, fees for pricing securities transactions, interest on extensions of credit related to custodied assets, income earned from bid-ask spread, financial advisory fees, clearance and settlement fees


FFI definition: new FI category, carveouts and clarifications (cont.)

► Family trusts and other passive, noncommercial investment vehicles which are not managed by an entity which is a depository or custodial institution, insurance company or money manager are not FFIs but rather passive NFFES. For example: ► Family trust, the trustee of which is an individual family member or a lawyer, is not an FFI.

It is a passive NFFE. ► Family trust, the trustee of which is a bank or trust company, is an FFI.

► Entities that are members of nonfinancial groups and were “excepted FFIs” under proposed regs. are renamed “excepted nonfinancial group entities.” Categories are expanded as follows: ► Holding company ► Treasury center — manages risk of price changes, currency fluctuations and interest rate

changes with regard to borrowings or property, balance sheet assets, liabilities, manages working capital, acts as financing vehicle for expanded affiliated group (EAG)

► Captive finance company — financing activities of suppliers and customers ► Start-up companies (or companies entering new line of business) ► Excepted inter-affiliate FFI (new category) — must maintain no account except for affiliates;

must not hold an account with any withholding agent that is not affiliated; and only makes withholdable payments to affiliates (and not an agent for Chapter 4 purposes for any entity)

► Section 501(c) entities ► Non-profit organizations


Deemed-compliant FFIs: new categories and modified qualification criteria ► Final regs. provide new deemed-compliant FFI (DCFFI) categories and

modify the qualification criteria and requirements for categories reflected in proposed regs.

► DCFFIs, as long as they meet their qualification criteria and requirements, do not have any other PFFI or withholding agent responsibilities.

► Registered deemed-compliant FFIs ► Must register with the IRS through the FATCA Registration Portal ► Certify their compliance every three years and notify the IRS within six months if

they no longer meet the requirements to be registered deemed-compliant FFIs ► FFIs from Model 2 IGA countries that are registered deemed-compliant FFIs under

the IGAs and reporting Model 1 FFIs are registered deemed-compliant FFIs ► Six categories of registered DCFFIs (partial list of requirements)

► Local FFIs ► Licensed and regulated in their country of organization and have a primarily local business ► Local FFI may not solicit outside its country (exceptions for certain websites, incidental

radio and media advertising) ► May not discriminate against US persons that are residents of its country


Deemed-compliant FFIs: new categories and modified qualification criteria (cont.)

► Six categories of registered DCFFIs (cont.) ► Nonreporting members of participating FFI groups:

► Must have policies and procedures ensuring that they have no US or non-participating FFI accounts or recalcitrant account holders ► Any such accounts must be closed or transferred to an affiliated participating FFI, reporting Model 1

FFI or US financial institution within six months of opening or identifying the account ► Qualified collective investment vehicles

► Must be regulated in their country of formation or in all countries in which they are registered and operate, or be managed by a manager which is regulated in all the countries in which the fund is registered or operates. Level of regulation required is not specified

► Bearer interests issued prior to 31 December 2012 meeting certain requirements may be outstanding for a transitional period

► Restricted funds ► Must meet the same regulatory and doing business requirements as qualified collective

investment vehicles ► Are subject to the same bearer interest rule ► Interests may either be sold directly by funds or by distributors meeting restricted distributor

requirements (which are also provided) ► Restrictions on sales to US persons, passive NFFEs with substantial US owners or NPFFIs must be

included in distribution agreements



► Six categories of registered DCFFIs (cont.) ► Qualified credit card issuers (new category)

► FFIs solely because they issue credit cards which permit credit balances ► Credit balances may occur only when customers make overpayments which

are not returned to them immediately. ► Must refund balances over US$50,000 to the customer within 60 days

► Sponsored investment entities and sponsored controlled foreign corporations (new and helpful category) ► The participating FFI responsibilities of these entities must be handled by a

sponsoring entity which has registered with the IRS and agreed to assume participating FFI responsibilities.

► Sponsored controlled foreign corporations must be owned by a US financial institution which is acting as the sponsoring entity, and the USFI and the sponsored entities must share an information system meeting certain requirements.

► The sponsoring entity for investment entities could be a fund manager, trustee, corporate director, etc.



► Certified deemed-compliant FFIs (partial list of requirements) ► Non-registering local banks

► Small FFIs (such as banks, credit unions and cooperative credit organizations) which are registered, regulated and operate only in their country of organization may qualify as non-registering local banks.

► A prohibition on solicitation outside the country of organization (with exceptions for certain websites and incidental radio and media advertising) applies.

► FFIs with only low-value accounts ► Must not be investment entities. ► Accounts (whether held at the FFI or at other members of its expanded affiliated

group) cannot exceed US$50,000 in balance or value ► Sponsored, closely held investment vehicles

(new and useful category) ► Managed by sponsoring entity that is itself a participating FFI, reporting Model 1,

or USFI and which registers with the IRS and agrees to perform all participating FFI responsibilities on behalf of the investment vehicle

► Limitations on individual and unrelated-party investors apply ► Other sponsored closely held investment vehicles may own 100% of the

investments in these vehicles (e.g., sub-fund structures)



► Certified deemed-compliant FFIs (cont.) ► Limited life debt investment entities (transitional)

► Only available prior to 1 January 2017 ► Collective investment vehicles that were established as of 31 December 2011 and which

will be liquidated on or prior to a specified date ► Must have been set up to acquire certain debt instruments ► Must be subject to contractual limitations (in their trust indenture or other organizational

document) on the authority and activities of the trustee or fiduciary which prevent them (or anyone else) from complying with participating FFI responsibilities

► Payments to investors must be made or cleared through participating or reporting Model 1 FFIs or USFIs

► Owner-documented FFIs (ODFFIs) ► Must be an investment entity (and that is why it is an FFI) ► May not be an intermediary and must have no account holders that are

nonparticipating FFIs ► Enter into agreements with designated withholding agents from which the ODFFI is

receiving payments and pursuant to which the ODFFI provides certain owner information and other documentation

► More documentation requirements than any other type of entity!


Exempt beneficial owners Relaxation, restriction, expansion and clarification of categories

► There are more exempt beneficial owner (EBO) categories under final regulations. ► An EBO under any IGA is an EBO under the regulations. ► PFFIs and withholding agents do not withhold on payments to documented EBOs. ► Final regs. clarify that EBOs do not have to withhold on payments to NPFFIs (and FFIs

that are intermediaries). They are not withholding agents under Section 1471(a). ► What about under Section 1472(a)?

► EBOs are: ► Foreign governments, political subdivisions of a foreign government, and wholly owned

instrumentalities of a foreign government ► International organizations and wholly owned agencies or instrumentalities of an international

organization (definition expanded to include organizations even if the US is not a member) ► Foreign central banks of issue ► Governments of US territories ► Certain non-US retirement funds (six categories) ► Certain investment entities that are FFIs and that are wholly owned by one or more other EBOs

(or entities owned by EBOs) ► Persons treated as EBOs under a Model 1 IGA or Model 2 IGA


Exempt beneficial owners Relaxation, restriction, expansion and clarification of categories (cont.)

► Payments to an EBO which is a foreign territory government, international organization or foreign central bank are not considered made to an EBO if the payments are made in connection with any obligations held by the EBO in connection with certain commercial financial activities.

► Categories of retirement funds that are EBOs: ► Treaty-qualified retirement fund ► Broad participation retirement fund ► Narrow participation retirement fund ► Fund formed pursuant to a plan which is similar to a US Section 401(a)

qualified plan ► Investment vehicle exclusively for retirement funds ► Pension fund of an EBO

► Retirement funds are EBOs under final regulations — not deemed-compliant FFIs.

Withholdable payments


FATCA “withholdable payments”

► FATCA introduces the term “withholdable payment,” which includes: ► Fixed or determinable, annual or periodical (FDAP) income

(defined as under NRA rules) that is US source ► Gross proceeds from the disposition of property that can produce

interest or dividends that are US source FDAP (i.e., sale of US securities)

► FDAP income generally includes interest, dividends, rents, royalties, compensation for services, premiums, annuities and most other types of gain, profit and income, unless excepted.

► FATCA regulations provide for certain exclusions, such as specified “nonfinancial” payments.

► A withholding agent must carefully track the types of payments being made to identify its FATCA requirements.


Types of payments included

► Withholdable payment types include: ► Bank and brokerage fees ► Investment advisory fees ► Custodial fees (e.g., fund manager fees) ► Payments in connection with lending transactions ► Forward, futures, option or notional principal contracts ► Premiums for insurance contracts or annuity contracts and amounts paid

under cash value insurance or annuity contracts ► Dividends on US securities ► Interest (with certain exclusions, including interest paid on obligations held

183 days or less) ► Original issue discount (excludes obligations held 183 days or less) ► Dividend-equivalent payments where the USWA acts as custodian ► Certain lease payments (e.g., financing leases)


Types of payments excluded

► Certain types of payments are specifically excluded from the FATCA definition of “withholdable payment.” These include: ► Payments for tangible goods ► Excluded nonfinancial payments

► Examples of payment types that are excluded: ► Fees paid for nonfinancial services (e.g., litigation fees paid for a

personal injury dispute or fees paid to an engineering consultant) ► Software licenses ► Interest on outstanding bills arising from services ► Rent for office space ► Use of property (e.g., royalty or intellectual property) ► Freight/transportation expenses ► Interest on deferred purchases (e.g., goods purchased on credit) ► Lease payments on equipment


Source of payments

► FATCA requirements generally only exist for FDAP income that is US source or gross proceeds from sales of US securities. Foreign source income is generally excluded from FATCA requirements.

► The source must be able to be determined: ► Processes should include documenting the source of income

where necessary ► Review all documents and information necessary to determine the source

of income, including contracts, invoices and knowledge of those involved in the transactions

► Where the source is not known, presumption rules require treatment as a US source

► Test current processes and procedures to ensure they determine the source properly and timely (before payment is made) and that the source is documented

► Update processes and systems as necessary

Documentation


Documentation

► The IRS has not issued revised Forms W-8 yet ► However, based on drafts:

► Revised Form W-8BEN will be used only by individuals to document NRA status and furnish treaty claims.

► New Form W-8BEN-E will be used by most entities to document FATCA and NRA status and furnish treaty claims. ► Draft is six pages long.

► Revised Form W-8IMY ► Draft is seven pages long.

► Upon the issuance by the IRS of updated tax forms: ► A withholding agent may continue to accept an older version of the

form (e.g., the February 2006 version of the Form W-8BEN) for six months after the revision date on the new withholding certificate.


“Electronic” Forms W-8 (faxes and PDFs)

► A tax form, written statement or other such form (prescribed by the IRS) may be accepted via fax if: ► The withholding agent confirms the individual or entity providing the form

is the individual or entity named on the form. ► The faxed form contains a signature of the person whose name is on the

form (or such person’s authorized representative), signed under penalties of perjury.

► A copy of documentary evidence may be accepted electronically (fax or email) if: ► The withholding agent confirms the person providing the form is the

person named on the form. ► The copy does not appear to have been altered from its original form. ► Note: the final regulations do not require, as in the proposed regulations,

documentary evidence furnished electronically to be certified or notarized.


Reliance on pre-FATCA Forms W-8

► With respect to certain payees, a withholding agent may be allowed to rely upon valid Forms W-8 already on file. ► A withholding agent may be required to obtain additional

information, either orally or in writing. ► Unless otherwise provided, a withholding agent may also rely on a

valid pre-FATCA Form W-8 until its period of validity expires.


Forms valid indefinitely

► Forms W-8 are generally valid for the year received plus three calendar years. ► However, the final regulations allow for certain instances in which

withholding certificates will be valid indefinitely, absent a change in circumstances: ► For individuals, where documentary evidence is furnished with the

Form W-8 and there is no indicia of US status ► Forms W-8 from a PFFI or a registered, deemed-compliant FFI with

a valid GIIN ► Forms W-8 from certain foreign entities furnished with

documentary evidence


Miscellaneous provisions regarding documentation

► Allow tax forms or other written statements to be signed by a director, any foreign equivalent of an officer in the US or any other person granted written authority

► Clarify rule regarding late-received Forms W-8 ► Permitting the submission of a tax form within 30 days of payment

(rather than the 15 days allowed in the proposed regulations) without an affidavit of accuracy as of the time of payment

► Allow for “inconsequential errors” ► Allow use of “checklists” to cure certain documentation issues


Limited applicability of the “eyeball test”

► To document US entities ► Obtain Form W-9

Or ► Alternatively, if the entity is an exempt recipient under existing tax rules, get documentary

evidence to prove US And

► Use either documentation or the eyeball test to prove the entity is a US person other than a specified US person

► Exempt recipients are: corporations, tax-exempt organizations, individual retirement plans, the US, a state, securities dealers, real estate investment trusts (REITs), regulated investment companies (RICs), common trust funds, charitable trusts, nominees or custodians and swap dealers.

► Eyeball test example: for a corporation, if the name of the corporation contains the word “Corp.” or “Inc,” it can be treated (“eyeballed”) as a corporation.

► Any US entity that is not an exempt recipient should be documented with Form W-9. ► Note: the presumption that an undocumented exempt recipient is presumed foreign

and thus NPFFI still applies!

Multiple accounts


Multiple accounts

► A new account of an existing account holder ► Is treated as a pre-existing obligation if:

► The account holder has a pre-existing obligation. ► All obligations (new and pre-existing) are treated as consolidated. ► Anti-money laundering (AML) due diligence is satisfied (if applicable).

► Multiple accounts of the same payee ► A withholding agent may rely on documentation for multiple

accounts of the same payee if: ► The withholding agent aggregates the accounts’ values

(when relevant). ► The withholding agent shares information across those accounts for

purposes of determining the reliability of the Chapter 4 status of the client.

► The system accommodates such aggregation and information sharing.

Impact of IGAs


IGAs

► Two Model IGAs have currently been published. ► FFIs located in a Model 1 IGA jurisdiction that are in compliance with

the terms of that IGA will be treated as satisfying FATCA due diligence and reporting requirements, and do not need to apply the final regulations. ► However, in certain cases, the partner jurisdiction may allow an FFI

resident in that jurisdiction to apply the final regulations instead of the Model 1 IGA rules.

► FFIs located in a Model 2 jurisdiction, that are not otherwise exempt under the IGA, are required to register with the IRS and report information about US accounts directly to the IRS consistent with the final regulations, except as expressly modified by the Model 2 IGA signed by a particular partner jurisdiction.

► There is the possibility of an additional Model IGA for jurisdictions that have no US tax treaty or tax information exchange agreement.


Signed/initialed (as of 22 February 2013) In negotiation In active dialogue Exploring options

► United Kingdom ► Denmark ► Spain ► Ireland ► Mexico ► Switzerland

(Model 2) ► Germany ► Italy ► Norway

► France ► Japan ► Canada ► Finland ► Guernsey ► Isle of Man ► Jersey ► Netherlands

► Argentina ► Australia ► Belgium ► Cayman Islands ► Cyprus ► Estonia ► Hungary ► Israel ► Korea ► Liechtenstein ► Malaysia ► Malta ► New Zealand ► Slovak Republic ► Singapore ► Sweden

► Bermuda ► Brazil ► British Virgin Islands ► Chile ► Czech Republic ► Gibraltar ► India ► Lebanon ► Luxembourg ► Romania ► Russia ► Seychelles ► Saint Maarten ► Slovenia ► South Africa

IGAs status

Many countries are in different stages of the IGA process. It is expected that 50+ countries will sign IGAs with the US.

FBAR

Report of Foreign Bank and Financial Accounts (FBAR) update

Questions?

Contacts

► Debra Taylor

Ernst & Young LLP New York, NY +1 212 773 2978 [email protected]

► Faye Polayes


► Justin O’Brien


► Douglas Sawyer Ernst & Young LLP New York, NY +1 212 773 8707 [email protected]

Ernst & Young

Assurance | Tax | Transactions | Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. © 2013 Ernst & Young LLP. All Rights Reserved. ED None 1301-1002270 BOS

Documents

FATCA, FBAR and cross-border reporting for financial ..._FBAR_and_cross-border... · FATCA, FBAR and cross - border reporting for financial services entities Debra Taylor, Ernst &